April 17, 2025

The major averages were on the rebound to start the week after the White House backpedaled on tariffs, temporarily exempting electronics, phones and other items. The DJIA put up back-to-back gains for the first time since March 24-25, but the wheels came off the bus on Wednesday after Nvidia (NVDA) and Advanced Micro Devices (AMD) announced big write-offs on new restrictions on chip sales to China and Dutch chip maker ASML (ASML) reported weak earnings and lower guidance. The different indexes took another leg down that afternoon after Fed chair Jerome Powell made hawkish comments pushing back on hopes for rate cuts due to the uncertainty of tariffs on inflation. The major averages made a tepid bounce on Thursday on announced progress on tariff talks with several trading partners, but the gains failed to hold leaving the major averages mixed at the close. After a spike on Monday, yields settled lower on the week with the rate on the 10-year Treasury closing at 4.330% and the Two-year T-Bill landing at 3.809%. The turbulent week also sent gold to record highs as investors sought out safer assets to offset market volatility. Crude oil prices nudged higher during the period as the White House worked to curb exports of oil from Iran the May contract closing at $64.27 a barrel. The Energy (XLE) sector outperformed, up +5.87%, but is still down -13.5% in April. Defensive sectors REITs (XLRE), Materials (XLB), Consumer Staples (XLP) and Utilities (XLU), also outperformed. Consumer Discretionary (XLY), Technology (XLK) and Communication Services (XLC) were the weakest market groups. The wild week kept jittery investors noncommittal, and the major averages finished the period down for a third week over the last four. Next week is light on economic data but one of the heavier periods for earnings as market participants keep a keen eye on forward guidance and how companies perceive the effect of the trade war.

For the period, the DJIA dropped 1070.48 points (-2.7%) and settled at 39142.23. The S&P 500 lost 80.66 points (-1.5%) and closed at 5282.70. The NASDAQ tumbled 438.01 points (-2.6%) finishing at 16286.45, while the small cap Russell 2000 bucked the trend adding 20.42 points (+1.1%) and settled at 1880.62.

Market Outlook: The technical condition of the market remained weak, but the major averages may be settling into a trading range while investors sort out the effects of trade policy. The technical indicators are mostly in bearish ground but there are some mixed signals. While Momentum, as measured by the 14-day RSI, is negative, the bounce off last week's low led to a bullish MACD crossover on the S&P 500 and NASDAQ. Underlying breadth was also positive with the NYSE and NASDAQ Advance/Decline lines, considered leading indicators of market direction, posting solid gains with new 52-week lows contracting despite a down market.  Market technicians will notice that the strong rebound that we've seen however, stalled at the 50% retracement of the February-April decline for the DJIA and S&P 500, while the NASDAQ bounce never made it to that resistance level. The major averages fell back below their 38.2% retracement level of that decline to end the week. In addition, the DJIA joined the S&P 500 and NASDAQ with a 'death cross' this week, whereas the 50-day moving average (MA) falls below the 200-day MA for the first time since 2022. While the ominous sounding signal can precede further weakness in the market it is considered a lagging indicator. Downside targets for the DJIA, S&P 500 and NASDAQ were hit the prior Monday and could mark the lows for this bearish cycle. If the major averages trade below those lows, which seems unlikely, a longer-term bear market could be in store. On the flip side, a break above last week's highs could be a sign that the different indexes are gaining upside momentum. For that scenario, look for a move above 40,780-40,800 on the DJIA, 5480-5500 on the S&P 500 and 17,202-17,220 on the NASDAQ.

The secondary indexes, which include the DJ Transportation Index, small cap Russell 2000 and Philadelphia Semiconductor Index, remain in a bear market, down more than -20% from their recent highs, but the DJ Transports and Russell 2000 showed positive divergence closing higher for a second straight week. 

Investor Sentiment continues to be overly bearish and can now be considered contrarian indicators. The American Association of Individual Investors (AAII) survey showed a +3.1% decrease in bullish retail investors and retail bulls were below the historical norm for the 14th time in 16 weeks. The National Association of Active Investment Managers (NAAIM) Exposure Index looks like the professionals are close to throwing in the towel. The pros cut equity exposure to 35.2%, the lowest since November 2023 which marked the bottom of a July-November selloff.

A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.

Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. 

Currently, the CTI is negative at -9, unchanged from the previous week. Cycles A, B, C and D are bearish, while Cycle E is bullish. If the DJIA can hold above this week's low of 39,114.09 the CTI will be reset to a positive, or bullish configuration. If that low is broken, then the bearish cycles will be extended.

Momentum Index (MI): The markets momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. 

The Momentum Index is Negative at -6, unchanged from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line gained 2648 units while the number of new 52-week lows exceeded the number of new highs on five sessions. Breadth was also mixed at the NASDAQ as the A/D line added 2385 units while the number of new lows out did the new highs on all each day. Finally, the percentage of stocks above their 50-day moving average jumped to 15.7% vs. 9.6% the previous week, while those above their 200-day moving average rose to 20.4% vs. 15.6% the prior week. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Sentiment Index (SI): Measuring the market's Bullish or Bearish sentiment is important when attempting to determine the market's future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Neutral at +2, up two notches from the previous week.

Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bearish as of the week ending 2/28/2025 (DJIA - 43840.91). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.

Industry Group Rankings: What's Hot (10) - What's Not (20): The following are the strongest and weakest Industry Groups for the period ending 4/16/25. Strongest: Infrastructure, Metals & Mining, Agricultural and Insurance. Weakest: Technology Hardware, Transportation, Consumer Goods and Healthcare Products. To review all the Industry Group rankings in the Market Edge universe, click on the Industry Group tab.

ETF Center: The top performing ETF categories for the week ending 4/16/25 were: Commodity-Precious Metals (+7.55%), International-Developed (+2.93%), Sector-Basic Materials (+2.90%), Europe (+2.58%) and Shorts (+2.53%). The weakest categories were: Specialty Technology (-6.36%), Sector-Telecom (-3.69%), Specialty Communications (-3.69%), Blend-Large Cap (-3.69%) and Growth-Large Cap (-3.43%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT